Project Appraisal- project planning and evaluation PDF

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Project Planning & Evaluation/304/BBA VI

PROJECT APPRAISAL Q1. Q2.

What do you mean by “Project Appraisal”? Discuss the steps. Explain the importance of SWOT Analysis in Project Appraisal.

Project appraisal is an exercise whereby lending financial institutions assess the various aspects of an investment proposal to arrive at the financing decision. Appraisal exercises are aimed at determining the viability of a project and reshaping the project so as to upgrade its viability. The factors generally considered by institutions while appraising a project include technical financial, commercial, economic, social and management aspects. For example the size of the in initial market and estimate for demand would determine the plant capacity and production phasing. These together will decide the profitability, which in turn determine the means of financing. In project appraisal exercise financial institution and banks make a critical appraisal of a project which is submitted to them by the entrepreneurs for getting loans. Project Appraisal aims at 1. Sizing up the quality of the project and the long term profitability. 2. Minimizing the risk of lending by rectifying the weakness of a project. 3. Initial Screening Steps in project Appraisal Generation of Ideas Initial Screening Is the Idea Prima Facie Promising? Plan feasibility Analysis

Conduct Technical Analysis

Conduct market Analysis Conduct Financial Analyses Conduct Economic Ecological Analysis

Is the project worth while

Project Planning & Evaluation/304/BBA VI

Prepare funding proposal

1. Market Appraisal/ Analysis : It is concerned with two broad issues:a) What would be the aggregate demand for the proposed/service in the future? b) What would be the market share of the project under appraisal?

Market analysis provided a wide variety of information e.g. Consumption trends on the past and the present consumption level Past and present supply position Production possibilities and constraints Imports and exports Structure of completion Cost structure Elasticity of demand Consumer behavior, intentions, motivations, attitudes, preferences and requirements. Distribution channels and marketing polices in use. Administrative, technical and legal constraints. Technical Appraisal/Analysis: Analysis of the technical and engineering aspects of a project needs to be done continually when a project is formulated. This analysis is done to ensure whether good choices have been made with respect to location, size and process etc. this analysis provided the following information.  Whether the preliminary tests and studies to been done or not?  Whether the raw materials, power and other inputs are available or not?  Whether the selected scale of operation is optimal?  Whether the production process chosen is suitable?  Whether the equipments and machines chose are appropriate?  Whether provision has been made for the treatment of effluents?  Whether the proposed layout of the site buildings and plant is sound?  Whether the technology proposed to be employed is appropriate from the social point of view. 3. Financial Appraisal/analysis:- This analysis is done to ascertain whether the proposed project will be financially viable or not? Whether the proposed project will satisfy the return expectations of those who provide the capital. This analysis provides the following information:  Means of financing  Cost of capital           2.

Project Planning & Evaluation/304/BBA VI

 Projected profitability  Break-even point  Cash flows of the project  Level of risk  Projected financial position. 4. Economic appraisal/analysis:- This is also referred to as social cost benefit analysis. This is concerned with judging a project from the larger social point of view. In such an evaluation the focus is on the social cost and benefits of a project which may be different from monetary costs and benefits. This type of analysis was primarily used for evaluating public investment projects but nowadays. This is done for both public and private projects. The commercial organization can make project investment decisions on concrete information. For example a co. that is making tobacco is concerned with factual information about its profitability, rate of return on investment, market share etc whereas a national planner has to evaluate the social cost of smoking on the health of the people. This appraisal provides information on:  Impact of project on employment generation.  Impact of project on improving consumption pattern.  Impact of project on GNP.  Impact of project on the distribution of income in the society.  Impact of project on the level of savings and investment in the society. 5. Ecological Analysis:- In recent years, environment concerns is becoming very important. Ecological analysis us done particularly for major projects which have significant ecological implications (like power pants and irrigation schemes) and environment polluting industries (like bulk drugs, chemical and leather processing). The ecological analysis provide the following information:  What is the likely damage caused by the project to the environment?  What is the cost of restoration measures required to ensure that the damage to the environment is contained within acceptable limits?...